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Here’s Why Cathie Wood Sticks With These 2 Big Innovation Stocks


What can we say about 2023? We’ve had a really challenging year, with a tough downtrend pushing stocks down across the board, especially in the tech sector. In this environment, transparency – the ability to see beneath the surface – has become more important than ever.

Cathie Wood, founder of fund ARK Invest and a longtime tech stock promoter, describes current economic conditions as a crisis. According to Wood, we are in a time when the money supply is falling, the commodity market is in decline, and inventories are shrinking; and Wood told us, “I believe the current market turmoil creates an opportunity for innovative strategies to thrive as the stock market recovers. Fear of the future is palpable, but crisis can create opportunity.”

Wood believes in allocating portfolio resources to disruption, to technology companies offering something new – a new idea, a new way to handle an old idea – that the Investors can take advantage of it to make a profit. “Disruption can appear in surprising forms and at unexpected times. Innovation solves problems and has a history of gaining market share in turbulent times,” she said.

Wood supports this view by targeting two tech companies that offer the kind of innovation that disrupts their niches. Let’s take a closer look.

Block, Inc. (SQ)

Block started as Square, back in 2009 and changed its name to Block in late 2021. The company’s flagship product, a financial services platform designed to meet the needs of businesses small and medium-sized businesses, is still considered ‘Square’ and continues to turn small entrepreneurs’ mobile devices into card readers and point-of-purchase terminals. Block also offers money transfer services Growing Cash App, as well as app-based music streaming, web hosting, and buy-now-pay-later services.

Cathie Wood notes that digital wallets, such as Square and Cash App, are in the process of changing the way businesses do business online – and so their future remains in flux. She writes about the niche and specifically about Square: “Allowing users to transact on their smartphones, digital wallets are replacing cash and credit cards. They have overtaken cash as the leading transaction method for offline commerce in 2020 and account for ~50% of global online commerce volume by 2021. In three years from pre-COVID levels in 2019. By 2022, Square’s payment volume has grown 193%, six times faster than the 30% increase in total retail spending.”

Block will release its Q4 22 results next month, but we can look back to Q3 for a quick snapshot of the company’s current position. The company reported total net sales of $4.52 billion, up 17% year over year. This top line generated a gross profit of $1.56 million; Of that total, $783 million was attributed to Square and $774 million to Cash App. Square’s gross margin is up 29% year over year, and Cash App is an impressive 51%.

The company beat forecasts for both profit and profit. The revenue beat was modest, but adjusted EPS of 42 cents beat expectations by 23 cents with an 82% excess. The company is forecast to post adjusted EPS of 29 cents in the final quarter of last year.

Covering Block for Deutsche Bank, five-star analyst Bryan Keane sees upcoming financial results continue to rise, despite tough economic conditions. He wrote, “Despite concerns about the possibility of a recession, we remain optimistic about SQ’s fundamental trajectory as we head into fiscal 2023. In particular, we believe SQ will continues to leverage leverage to drive margin expansion as the company deepens its focus on containing opex while investing in long-term growth. Additionally, we remain highly constructive on Cash App and believe the segment is likely to surpass consensus estimates in Q4 2022 as new products and services continue to drive momentum. higher earning rate.”

All of this has led Keane to rate SQ stock as Buy with a $95 price target. This goal represents his belief in SQ’s ability to grow ~25% higher next year. (To see Keane’s achievements, click here)

Top tech companies tend to get a lot of attention from the Street, and SQ stock has 25 recent analyst reviews on file. They are divided into 19 Buy, 5 Hold, and 1 Sell, for a Buy Moderate consensus rating. (See SQ stock forecast)

Roku, Inc. (ROKU)

We will now move on to the realm of connected TV on demand, the fusion of TV with the internet. Roku, which offers users a Roku streaming player and content access through a subscription service, has emerged in recent years as a leader in the field. Roku’s income stream comes from a combination of subscription and advertising revenue.

Connected TV, by turning the old ‘dumb box’ into an interactive audiovisual entertainment and advertising tool, while integrating the latest flat-screen imaging technology, is changing the way we watching TV and that caught Cathie Wood’s attention.

“In 2022, TV advertising in the US has undergone significant changes as linear ad spend declines 2% in real terms to ~$70 billion and connected TV ad spend (CTV) under the same conditions increased 14% to ~$21 billion. Pure CTV operator Roku’s ad platform revenue grew 15% year-on-year in the third quarter, the latest report available, while the traditional TV distributed market plummeted 38% year-on-year. compared with the same period last year in the US,” Wood noted.

“Despite fierce competition, last year Roku maintained its position in the CTV market as the leading smart TV supplier in the US, accounting for 32% of the market, market share equal to Android, Tizen (Samsung) and WebOS (LG) combined,” Wood added.

However, the company suffered from persistently high inflation, but even suffered the effects of inflation for advertisers – as their sales fell, they reduced ad spending, this reduces the revenue and earnings of companies like Roku.

On a positive note, Roku has been using its resources — more than $2 billion in cash, as of the end of Q3 — to upgrade its services. The company developed the original program and released a new premium connected TV reference design, based on OLED technology for a higher quality picture. The new set is paired with Roku’s signature streaming player. Additionally, Roku announced this month that it has exceeded 70 million premium subscriptions globally. This milestone goes hand in hand with data showing that Roku has also seen its highest monthly streaming hours ever. Both metrics bode well for the company, and suggest that audiences continue to shift from traditional broadcast television to on-demand streaming services.

Benchmark analyst Daniel Kurnos sees Roku’s recent announcement that it will expand into the hardware sector through making its own TVs as a potentially winning move for the company, enables the company to maintain and expand its leadership in connected TV. .

“We see this move as impactful in a number of ways: 1) As a defensive move to integrate more into the broader ecosystem, including allowing Roku to use its own R&D budget them to transfer more integrated technology to their manufacturing partners; 2) To reduce reliance on their partner network to grow active accounts, which we believe remains the main focus; and 3) Enable Roku to enhance their product offering across the entire size/price range, expand TAM and branding efforts, and allow Roku to more quickly address channels assigned represented in retail and across geographies,” explains Kurnos.

Quantifying his bullish stance, Kurnos gives ROKU a Buy rating and he sets his price target at $65 – to imply a one-year upside potential of 22%. (To see Kurnos’ achievements, click here)

While there are bulls trailing Roku – as the comments of Cathie Wood and Dan Kurnos make clear – Wall Street is generally cautious here. This stock has 22 recent analyst ratings, including 8 Buy, 9 Hold, and 5 Sell, for a Hold consensus. (See ROKU stock forecast)

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deny the responsibility: The opinions expressed in this article are those of prominent analysts only. Content is used for informational purposes only. It is very important that you do your own analysis before making any investment.

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